CLIENT/PROJECT DUE DILIGENCE
What is a “high risk client”
We define “high risk” clients as those who are likely to have a greater than average propensity for:
- Becoming a collection problem;
- Demanding extra time and attention far exceeding what is appropriate for the project;
- Creating conflicts of client and/or business interest.
Establishing due diligence guidelines
We have established due diligence guidelines and procedures regarding the acceptance of work from new clients as well as certain types of work from existing clients. Asking particular questions through our intake form during/after an initial meeting with a potential client enables us to determine whether to accept a project with a potential client.
Typical questions for prospective clients should include the following:
? How did the prospective client select our company?
? Was the prospective client referred through other clients or business contacts or are they contacting the firm “cold?”
? Are any individuals in the firm related to the prospective client or otherwise socially acquainted with them?
? What is the prospective client’s business and who are their competitors?, i.e., Check web-site, and Internet articles, etc.
? Where/how did the prospective client originate, i.e., .a spin-off from another company, new venture, practical experience of the owners of the business, etc.?
? What is the financial situation of the prospective client and the owners of the business, including:
- Client size (annual sales documentation and D&B search if business; net worth if individuals)?
- What are the source(s) of funds to pay for the business operating expenses, including the advisory work to be performed?
- What fee arrangement is being contemplated?
- What is the client’s willingness and ability to pay a retainer?
- What is the client’s attitude toward “evergreen” retainers?
- Are there any outstanding judgments against the prospective client, either as a company or as individuals?
- What are the prospective client’s business needs and “Ask”?
- What is the nature of the work being contemplated and what is the expected duration of the assignment?
- What is the expected total volume of billings?
- What are the expectations of the needs regarding the outcome of services?
- How does the prospective client’s needs comport with the firm’s strategic plan regarding the firm’s desired mix of business?
- Has the prospective client used other accelerators or business advisors on the problem being presented?
Basic Due Diligence
Regardless of the answers to questions provided by the prospective client to the questions set forth above, the firm should perform the following checks:
1. Reference checks, including through funding sources;
2. Website and literature review; news clips and other Internet sources;
3. Dunn & Bradstreet search and/or review of financials if company;
4. Credit reports run on individuals (with client’s permission);
5. Other relevant information identified in email exchanges